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Japan’s ruling bloc approves big corporate tax cut to encourage wage hikes,

Japan’s ruling bloc approves big corporate tax cut to encourage wage hikes,

TOKYO: Japan’s ruling bloc approved a plan on Thursday to slash the corporate tax rate to around 20 percent from 30 percent but only for

companies that raise wages aggressively and boost domestic capital spending. The carrot-and-stick approach is Prime Minister Shinzo Abe’s most aggressive step yet to convince companies to lift wages 3 percent, which he believes is needed to stimulate consumer spending and vanquish the deflation that has plagued Japan for nearly two decades.

Qualifying companies would also need to substantially boost investment in factories and equipment. Abe’s ruling bloc also approved a raft of tax hikes for coming years to pay for a bulging welfare bill, at the risk of putting a damper on private consumption.

The government expects a rise in personal income tax effective in 2020 to bring in some 90 billion yen ($800 million) in additional annual tax revenue.

The tax increase will be realized through cuts in deductions for salaried workers earning more than 8.5 million yen annually, except those with children or other family members in need of care.

Basic deductions for all earners will be expanded to encourage more work flexibility.

The tobacco tax will be hiked by 3 yen per cigarette or 60 yen a pack in stages over the next four years, the first such increase since 2010. Taxes will also rise on “heat-not-burn” tobacco in stages over the next five years.

In addition, the ruling bloc agreed to adopt a departure tax of 1,000 yen on people leaving Japan to enhance infrastructure for tourism, starting in 2019. It also agreed to adopt an additional residential tax of 1,000 yen to fund conservation of forests from April 2024.